As a general rule, the most successful man in life is the man who has the best information- Benjamin Disraeli
Part one of a two-part series examining junior gold prospectors in B.C.
Gold, copper and gold
“What really bothers me is that in the 1980s or 1990s, we saw three to five discoveries of 5 to 20 million ounces each, and upwards of 30 to 50 million ounces a year. That is what makes or breaks the industry. There are no discoveries of that magnitude now.” Pierre Lassonde a veteran gold analyst, co-founder/chairman of Franco Nevada Mining Corp., acting chairman of the World Gold Council, and former president of Newmont Mining Corp. For The Gold Report www.aureport.com
Each year the mining industry must come up with a major new gold discovery of five million ounces just to replace what one of the world’s top gold miners dig up.
"In the case of gold, the world is currently mining it faster than it is finding it. Furthermore the average size and grade of gold discoveries continues to decline.” Richard Schodde, Managing Director of MinEx Consulting
Mining is the story of depleting assets. That asset must be constantly replenished; miners that want to stay in business must replace every ounce taken out of the ground and there aren’t a lot of the larger size gold deposits left to find or buy that would really affect most of these larger companies’ bottom lines. Replacing what they’ve mined let alone finding more productivity/resources is getting harder and harder.
In BC, there are two styles of mineralization that are becoming increasingly important in the global quest to replace declining gold production. These two styles are porphyry copper/gold mineralization and sediment hosted mineralization.
Porphyry copper/gold deposits
Porphyry copper deposits are copper ore bodies, which are associated with porphyritic intrusive rocks and the fluids that accompany them. Porphyry ore bodies typically contain between 0.4 and 1 % copper with smaller amounts of other metals such as molybdenum, silver and gold.
In Canada, British Columbia enjoys the lion’s share of this type of deposit, and they contain the largest resources of copper, significant molybdenum and 50% of the gold in the province.
There’s a very real trend by major mining companies to making deals with junior resource companies that presently own copper/gold porphyry projects in BC.
·Copper Mountain(TSX: T.CUM, Stock Forum)/Mitsubishi
·Novagold/Teck Resources
·Cariboo Rose (TSX: V.CRB, Stock Forum)/Gold Fields (NYSE: GFI, Stock Forum)
·Terrane Metals (TSX: V.TRX, Stock Forum)/Goldcorp (NYSE: GG, Stock Forum; TSX: T.G, Stock Forum)
·Kiska Metals (TSX: V.KSK, Stock Forum) (formerly Rimfire Metals)/Xstrata
·Taseko (TSX: T.TKO, Stock Forum) joint ventured 25% of Gibralter to the Cariboo Copper Corp. - jointly owned by Sojitz Corporation (50%), Dowa Metals & Mining Co., Ltd. (25%) and Furukawa Co., Ltd. (25%)
Because large pure gold deposits are so hard to find - the low hanging fruit has already been picked - gold miners are turning to deposits that contain other metals like copper.
There are two factors that make these kinds of deposits so attractive – firstly by focusing on profitability and mine life instead of solely on grade the other inputs of scale/cost can offset the lower grade and this results in almost identical gross margins between high and low grade deposits. Low grades can mean big profits for mining companies.
The second factor affecting profitability of these often immense deposits is the presence of more than one payable metal. For gold miners using co-product (copper) accounting, the cost of gold production is usually way below the industry average.
Copper-gold porphyries can offer both size and profitability. These kinds of deposits are one of the few deposit types, which contain gold and have both the scale and the potential for decent economics to justify a major commitment from a major mining company to replace and add to their gold reserves.
Abacus Mining (TSX: V.AME, Stock Forum)
Abacus Mining has been advancing and developing its multiple copper porphyry deposits in the Afton Mining Camp since 2002, and now has an updated (January 2009) NI 43-101 resource estimate on the Ajax project which states the resource area has 365 million tonnes, measured and indicated, grading 0.31% Cu and 0.20 g/t Au, which contains 2.51 billion lbs of Cu, and 2.29 million ounces of Au. This 365 million tonne resource is an in pit resource, meaning it is totally contained within the proposed Ajax pit walls; it is not a property wide global resource.
“This PEA, which in many areas is as advanced as a prefeasibility study, clearly demonstrates the long term viability of this brownfield project. While the base case economics are themselves attractive, the significant economic value of this deposit is clearly demonstrated when using today's commodity market prices.” Tom McKeever, Executive Chairman of Abacus
The National Instrument 43-101 ("NI 43-101") compliant study was completed by Wardrop, a Tetra Tech Company ("Wardrop"), and contains production parameters, capital costs, operating costs, and other financial projections for an open pit mine processing 60,000 tonnes of mill feed per day. The metal prices used for the base case were US $2.00 per pound copper and US $700 per ounce gold.
Base Case Highlights (All figures in US dollars and pre-tax)
·Net present value of $192.7 million discounted at 8%
·Return on initial capital expenditures of $535 million is 40.4%
·Average life of mine cash costs of $1.17 per pound copper net of gold credit at $700 per ounce
·Average annual production estimated at 106 million pounds of copper and 99,400 ounces of gold in concentrate
·Mine life of approximately 23 years
·The pit inventory resource contains 2.6 billion pounds of copper and 2.4 million ounces of gold in the measured and indicated category
Cariboo Rose (TSX: V.CRB, Stock Forum)
The Quesnel Trough is a large regional depositional belt extending over 1200 kilometers through the central part of the province of British Columbia. It encompasses most of the operating mines in the province as well as most of the projects at the pre-feasibility and feasibility stages of development. The region hosts several large tonnage copper-gold porphyry type deposits including Imperial Metal’s (TSX: T.III, Stock Forum) Mt. Polley Mine, Terrane Metal’s Mt. Milligan deposit and Northgate’s (TSX: T.NGX, Stock Forum) Kemess Mine. In addition, Taseko’s Gibraltar mine and Abacus’s Afton Project lie just outside the Quesnel Trough.
The lion’s share of exploration dollars in the province is being spent in this geological belt. The Quesnel Trough has become one of BC’s most sought-after exploration/developmental targets due to the large number of porphyry copper-gold and skarn occurrences.
The Woodjam copper-gold-molybdenum project is in south central British Columbia approximately 50 kilometers east of Williams Lake.
An IP study performed in 2007 gave evidence that a large intrusive/hydrothermal complex measuring approximately five kilometers by six kilometers underlies the Woodjam property. This geophysical survey data dramatically expanded the area of interest for exploration on the Woodjam property and suggested a much greater potential for discovery than previously envisioned.
Northeasterly trending geologic features have long been considered important in determining the location of large mineralizing systems in the generally northwest trending Quesnel Trough. Interpretation of this data suggests that such a feature is present and is aligned with the known mineralized areas on the property.
The Woodjam project is a joint venture between Fjordland Exploration Inc. (TSX: V.FEX,Stock Forum) with a 60% interest and Cariboo Rose with a 40% interest. The land holdings measure up to 40 kilometers east/west and 30 kilometers north/south encompassing approximately 48,000 hectares.
Mineralization is calc-alkalic porphyry style with higher than average grades for a Quesnel Trough porphyry. Chalcopyrite is the dominant copper mineral but boronite is also present. Gold mineralization is directly correlated with copper: where there’s copper there’s gold.
Gold Fields Horsefly Exploration Corporation - a member of the Gold Fields Limited group of companies - signed an Option and Joint Venture Exploration Agreement which grants it an option to earn up to a 70% interest in the northern portion of the Woodjam gold-copper property (Woodjam North Property).
Gold Fields may earn an initial 51% interest by spending $7 million in exploration, and making $350,000 in cash payments over a three-year period with a minimum expenditure of $1 million in the first year. Gold Fields may extend the option to earn a further 19% interest in the Woodjam North property by funding a further $12 million in exploration over a 4-year period.
Recently Gold Fields has provided written notice that it intends to exercise a right of first refusal with respect to the Woodjam South copper-gold property. This offer matches one presented by another major international mining company.
Gold Fields has decided to increase its planned winter drilling program - which resumed on February 10, 2010 - to 7,000 meters. The 12-month program which began in July, 2009 is budgeted at $3 million.
**Excerpted from an original article here.
See Part two on Monday.
Richard (Rick) Mills
rick@aheadoftheherd.com
www.aheadoftheherd.com
Disclosure: Richard Mills owns shares of Tiex Inc.
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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.